Expanding Access to Affordable, Quality Health Care

The Commonwealth of Massachusetts is a national leader in
ensuring access to affordable, high quality health care. With the enactment of
comprehensive health care reform legislation in 2006 and the Patrick-Murray
Administration’s continued implementation, Massachusetts has achieved the
highest rates of insurance coverage in the country. Due to this leadership,
Massachusetts served as a model for the 2010 federal Affordable Care Act (ACA).
Today, the Commonwealth is well-poised to benefit from funding opportunities
through the ACA for Medicaid expansion as well as other federal subsidies for
insurance coverage through the Commonwealth Health Insurance Connector
Authority (Health Connector).

At the same time, increasing health care costs have been an
underlying challenge for government, employers, and individuals. Independent
estimates suggest that health care reform only added approximately 1.4 percent
in state spending to the budget. However, health care spending has increased
from 20 percent of the budget in FY 2000 to 39 percent of the budget in FY 2013.
This increase is due in part to having to restrain spending in other areas of state
government when demand for government health programs increased during the
recession. Therefore, health care spending increases have been driven largely
by enrollment growth.

Based on long-term forecasts conducted by the Executive
Office for Administration and Finance (A&F), should health care costs to continue
to grow at these historic rates, they would consume approximately 50 percent of
state spending by 2020. In addition to being unsustainable for
governments, businesses, and families, health care spending has crowded out key
public investments, which, among other consequences, can impact the health and
welfare of the people in the Commonwealth. Containing the growth of health care
costs has been a key priority of the Patrick-Murray Administration. Thanks to a
variety of innovative cost containment initiatives, the state has saved over
$1.6 B in health care costs over the last two years.

For example:

The Group Insurance Commission (GIC), through an active
re-enrollment and targeted incentives to employees, enrolled 30 percent of
state employees in limited network plans, saving the state over $20 M and
saving each of the employees who selected a limited network plan hundreds
of dollars.

The Health Connector used innovative,
competitive procurements to incentivize plans to improve cost structures
and reduce per member premiums by 12 percent over the last two years,
saving $267 M.

MassHealth leveraged innovative contracting
strategies to achieve efficiencies in its managed care program, which resulted
in $350 M in savings.

With support from many in the business community,
landmark legislation in 2012 established a new, expedited process for
municipalities to work with their employee unions to modernize benefit plan
designs to achieve savings. The reform has been successful, with more than
200 cities, towns, and regional school districts leveraging the law to
achieve over $175 M in premium savings.

Through the Division of Insurance’s (DOI) regulatory authority,
average annual premium base rate increases have been reduced from over 16
percent to just over 2 percent, saving small businesses and families over $600
M.

In FY 2014, subsidized and employee health coverage programs
account for 40 percent of the budget. The Commonwealth continues to implement
extensive payment and delivery system reform initiatives that aim to control health
care costs, support integrated systems of care and improve quality, putting
Massachusetts again at the forefront of national health care reform.

Health Care Cost Containment Legislation

In August 2012, Governor
Patrick signed Chapter 224: An Act Improving the Quality of Health Care and
Reducing Costs through Increased Transparency, Efficiency and Innovation. Chapter
224 includes a variety of tools to help further contain and reduce costs while
maintaining high quality, best-in-class care. Highlights include:

Establishing a statewide health care cost growth goal for the
health care industry pegged at a rate no greater than the growth of the state’s
overall economy, resulting in estimated savings of $200 B in the entire health
care sector over 15 years.

Requiring state programs to lead by example in moving toward
alternative payment methodologies (APMs) that promote the delivery of
high-quality and coordinated health care.

Establishing a certification process for accountable care
organizations (ACOs) and patient-centered medical homes (PCMHs). ACOs are
health care provider systems focused on reducing costs by promoting integrated,
efficient, and high quality care. PCMHs focus on providing patients with a
single point of coordination for all of their health care in a primary care
setting.

Committing $57 M over four years through a competitive grant
process to invest in community-based prevention, public health, and wellness
efforts to reduce the rates of costly preventable chronic diseases, such as
obesity, diabetes and asthma.

Increasing transparency and protections for consumers regarding
costs and health care quality through the establishment of a new health
information website with price and quality data; the requirement that insurance
carriers disclose in real-time the charges and out-of-pocket costs for proposed
health care services; and the requirement that providers disclose charges for
proposed services.

Charging the Attorney General with monitoring trends in the
health care market, such as consolidation in the provider market, in order to
protect health care access and address market power.

Establishing a commission to determine and quantify acceptable
and unacceptable factors for provider price variation.

Reforming the medical malpractice system by requiring a
“cooling-off” period before a party may initiate a suit, while protecting
patients’ right to sue and making providers’ apologies inadmissible as evidence
in litigation.

Committing $28.5 M to accelerate the ongoing statewide adoption
of interoperable electronic health records (EHRs) and the creation and
sustainability of a health information exchange that will facilitate the
transfer of EHRs across the Commonwealth.

Committing $128 M to a Distressed Hospital Trust Fund to improve
service delivery and health information technology at community hospitals.
These improvements will facilitate the transition to APM and the adoption of
EHR technology for community providers.

Establishing the Health Care Workforce Transformation Fund,
administered by the Executive Office of Labor and Workforce Development, to
support initiatives such as health information technology curriculum and
workforce development, the health care workforce loan repayment program, and
the primary care residency grant program.

The upfront investment that these initiatives require is
modest compared to the long-term savings that will result. By 2026, the percentage
of gross state product (GSP) is projected to decrease from 21 percent to 17
percent. Cumulatively over the next 15 years, Chapter 224 has the potential to
result in an estimated $200 B in savings across all sectors of the state economy.

Executive Office of Health and Human Services and Department of Public Health

The Executive Office of Health and
Human Services (EOHHS) and the Department of Public Health (DPH) will
receive $950 K in FY 2013 and $2.23 M in FY 2014 to implement three key
initiatives associated with Chapter 224:

Health Resource Planning: EOHHS will chair and convene a health
planning council that is required to develop a state health resource plan. The
state health plan will identify the Commonwealth’s needs in terms of health
care services, providers, programs, and facilities, as well as compile an
inventory of available resources to meet those needs. The plan will also identify
priorities and make recommendations for addressing those needs ($503 K in FY 2013;
$1.61 M in FY 2014).

Determination of Need (DoN): Health care facilities planning
substantial capital expenditures or change in services must submit proposals to
the DoN program, which then reviews them and makes recommendations to the Public
Health Council. DPH will modify 20 the Determination of Need statute to
maintain consistency with the state health plan, as well as update definitions
and fee structures. The program is also being mandated to reduce its mean
application review time from the current 5.8 months to 4 months. ($251 K in FY
2013; $502 K in FY 2014)

Prevention and Wellness: DPH will administer the Prevention and
Wellness Trust, funded through industry assessments in 2014. The Trust will
invest $57 M over 4 years in evidence-based community prevention activities. Funding
will be administered through competitive grants to municipalities, community
organizations, regional planning agencies and health care plans and providers.
Additionally, DPH will develop a model wellness guide and implement a wellness
tax credit program for small businesses. ($196 K in FY 2013 for administrative
costs; $116 K in FY 2014 for workplace wellness activities not funded through
the Trust)

The completion and operation of the Massachusetts Health
Information Exchange is integral to the success and sustainability of health
care cost containment. Grounded in its unique investment model characterized
by high (75-90 percent) federal financial participation (FFP), the
Commonwealth’s HIE stands out among all other electronic health record tools in
the nation.

In FY 2013, phase 1 of HIE brought functionality that allows
two health care entities to send and receive health care transactions. Phase 2,
in FY 2014, will allow for query and search functionality for patient records
to exist across Massachusetts. This will further expand the benefits of the
HIE for achieving better coordinated, safer, and more efficient care.

In FY 2013, the Commonwealth invested $2 M in budgetary
resources for HIE development. In the FY 2014 budget, HIE support and
operation will require $1.1 M in budgetary resources. This funding, along with
capital resources and contributions from private and other health care trust
funds, will be directed to a Health Information Exchange Fund managed by EOHHS,
which will allow for the reinvestment of FFP to support the HIE. The
innovative use of FFP to support HIE allows the Commonwealth to bring the
benefits of a $40 M HIE project to its residents, providers and payers in a
comparatively affordable way.

MassHealth

In support of the goals and mandates in Chapter 224, the
Commonwealth is investing significant resources in MassHealth. Hospital rates
are increasing by 5 percent to help address costs associated with the
transition to alternative payment methodologies and models of care which will
produce sustainable savings in the health care system. Please refer to the
MassHealth Investment section for more information.

State Auditor’s Office

The State Auditor’s Office is receiving an additional $863 K
to fund a new line-item dedicated toward evaluating the impact of Chapter 224,
its implementation and its impacts on controlling health care costs. Of the
total, $708 K will support additional staffing and consultants to advise the
Auditor’s office and $155 K will be devoted towards implementing IT build-out
to support this initiative.

Division of Insurance

The Division of Insurance (DOI) is level-funded in FY 2014
although it will continue to prioritize its cost-cutting insurance carrier rate
review process. Chapter 224 requires DOI to promulgate regulations and
establish an application and renewal process for certifying Risk-Bearing
Provider Organizations. Chapter 224 also requires DOI to strengthen the
reporting and implementation requirements for health plans with regard to
compliance with state and federal mental health parity laws.

Health Policy Commission

The independent Health Policy Commission (HPC) is an
integral component of Chapter 224 implementation. The HPC will set health care
cost growth goals, enhance provider transparency, monitor the health care
marketplace and assess patient access, among other responsibilities. It is
governed by an 11-person board, as appointed by the Governor, the Attorney
General, and the State Auditor.

Center for Health Information and Analysis

Chapter 224 abolished the Division of Health Care Finance
and Policy and transferred the Division’s responsibilities to MassHealth, the
Connector, and the newly-created Center for Health Information and Analysis
(CHIA). CHIA was created as an independent state agency to monitor the
Massachusetts health care system through data collection and research and to
release reliable information and meaningful analysis to a wide variety of
audiences. CHIA’s analytics will be a critical resource for the HPC to fulfill
its obligations with respect to measuring cost growth and identifying
opportunities for improvement in the health care system. The comparison of
CHIA’s analysis of statewide health care cost trends to the benchmark growth
rate set by the HPC is one of the key triggering mechanisms of Chapter 224.

Chapter 224 assigns three broad categories of new
obligations to CHIA. First, the law greatly expands existing monitoring and
analytics, including calculation of statewide health care spending. Second,
CHIA’s role in developing and coordinating a statewide quality strategy –
including a reinvestment in the Betsy Lehman Center for Patient Safety and
Medical Error Reduction – will expand significantly. Finally, the law requires
CHIA to increase investment in the All-Payer Claims Database to further enhance
the ability of providers, payers and purchasers to improve the health care
system.

Much of the former DHCFP’s analytic resources (including
staff) remain with CHIA, but the new obligations require additional
investments. In November 2012, the operation of the Health Safety Net and the
development and promulgation of health care pricing regulations were
transferred to MassHealth. The movement of these responsibilities during FY 2013
allows CHIA to pursue its new responsibilities, largely within its existing $22
M appropriation level. In FY 2014, CHIA will receive an investment of $2.8 M,
for a total funding level of $24.8 M.

Implementation of the Federal Affordable Care Act

Beginning January 1, 2014, the federal Affordable Care Act
(ACA) will affect all state health care programs and cause significant shifts
in funding. Massachusetts will benefit from being a state that expanded health
care access prior to the ACA, enabling the Commonwealth to utilize existing
infrastructure to reduce costs and increase federal support. There are several
major program changes related to the ACA that will have a significant impact on
the Commonwealth’s budget, resulting in increased revenue and decreased cost totaling
$205.7 M in the second half of FY 2014.

Expansion of MassHealth-Eligible Population

Prior to the ACA, eligibility for MassHealth was limited to certain categories of
individuals such as pregnant women, children under 19 and their parents, the
disabled and the elderly, provided their income met certain requirements. Under
the ACA, all Massachusetts residents under 133 percent of the federal poverty
level (FPL) are eligible for MassHealth if they are citizens or qualified
aliens. The expansion, referred to as MassHealth Expansion populations, will be
supported by enhanced federal matching funds. Federal financial participation (FFP)
will increase from 50 percent to 75 percent for this population, ramping up to
90 percent in 2020; FFP is also anticipated to increase to 100 percent for some
new enrollees in 2014, gradually falling to 90 percent in 2020.

Current estimates suggest that 325,000 members will enroll
in MassHealth, including members currently enrolled in the Commonwealth Care
program, the Medical Security Program (MSP), the Health Safety Net (HSN),
MassHealth’s Essential and Basic programs and new enrollees. The cost of the ACA
expansion population in the second half of FY 2014 is estimated to be $437 M,
with projected revenues of $461 M. Much of this cost represents a shift in
spending from other programs and the consolidation under MassHealth will lead
to savings of $155.7 M.

MassHealth will continue to cover certain groups above 133
percent FPL, including children up to 300 percent FPL, individuals with breast
and cervical cancer up to 250 percent FPL, individuals with HIV and pregnant
women up to 200 percent FPL, and disabled people with higher incomes.

State Wrap Premium Assistance at the Health Connector

Under the ACA, the Health Connector will administer the
Commonwealth’s health insurance Exchange. The Exchange will allow individuals
and businesses to shop for health insurance coverage. The State Wrap will
supplement federal subsidies available in the Exchange by providing premium
assistance to individuals with incomes 133 percent to 300 percent FPL, as well
as certain Aliens with Special Status (AWSS) with incomes 0 percent to 300
percent FPL who are ineligible for MassHealth. These combined federal and state
subsidies are intended to make subsidized coverage for this population as
affordable for them as it is today under Commonwealth Care. An estimated
150,031 members are expected to enroll from Commonwealth Care, MassHealth, MSP,
and HSN. The FY 2014 cost of the State Wrap is estimated at $118.5 M

The Centers for Medicare and Medicaid Services (CMS) has
indicated that a 50 percent federal match will be available in FY 2014 for
premium assistance payments for State Wrap members, with the exclusion of AWSS,
making available an additional $21 M in available revenue. This revenue,
combined with the enhanced FFP available through the ACA, will enable the
restoration of full adult dental coverage for MassHealth members and for
individuals with incomes below 133 percent FPL who are enrolled in the Health
Connector with the State Wrap.

Subsidized Coverage for Small Business Employees

MassHealth currently has an
Insurance Partnership program that encourages small employers to offer health
insurance by providing assistance with premiums for small businesses and their
low income employees. Under the ACA, MassHealth plans to discontinue the
employer-side subsidy, in light of the proposed changes to the Commonwealth’s
employer responsibility provisions and the availability of federal tax credits
and state wellness rebates to certain small businesses that purchase coverage
through the Exchange.

However, MassHealth will continue
to support employees of small businesses through a pilot program offering
premium assistance for adults 133-300 percent FPL who work for small employers,
are ineligible for other subsidized programs through MassHealth or the Health
Connector and would otherwise be uninsured. The member’s required premium
contribution will align with the state’s affordability schedule. There will be
a transition period of one year to ensure that employers are ultimately
shopping through the Exchange in order for their employees to be eligible for
the premium assistance. This will allow eligible employers to have access to
federal tax credits and the Health Connector’s wellness rebates. Enrollment in
the pilot program will be capped if necessary to ensure that expenditures do
not exceed the amount of funding available. Total FY 2014 funding for
subsidized coverage for small business employees, through both the Insurance
Partnership in the first half of the year and the pilot program in the second
half of the year, is $33 M total with a $16.5 M federal match.

Health Safety Net

The Health Safety Net (HSN) makes
payments to hospitals and community health centers for providing certain health
care services to their low-income patients who are not eligible for health
insurance or cannot afford it. The HSN is funded primarily through assessments
on hospitals and health insurance providers. FY 2014 funding also will include
a $30 M contribution from the General Fund.

Due to expanded options for affordable health coverage
through MassHealth and the Health Connector, HSN demand is expected to decline
by $36 M (assuming 8 percent growth rates) to $58 M (assuming 4 percent growth
rates). The reduction in the shortfall from $143 M in FY 2013 to at least $107
M represents a 25 percent decline, with the possibility of a 41 percent decline
to $85 M. This constitutes a major step towards improving the fiscal outlook
for Massachusetts hospitals.

Medical Security Program

The Massachusetts Department of Unemployment Assistance
provides health insurance assistance through the Medical Security Program (MSP)
for low income residents of the Commonwealth who are receiving unemployment
insurance benefits. The MSP has projected spending of $43 M for the first half
of FY 2014. Beginning January 1, 2014, MSP members will become eligible for
other health insurance programs such as those offered by MassHealth and the
Health Connector.

In addition, the funding that supported the MSP, known as the
Unemployment Health Insurance (UHI) assessment will be reduced and repurposed
to support subsidized coverage in MassHealth and the Connector. For more
information, see the “Lowering Health Care Costs for Businesses” Issue in
Brief.

MassHealth Policy Initiatives

The Administration proposes policies that aim to maintain
coverage for current populations who otherwise could be adversely affected by
ACA implementation, and that support streamlining current programs to promote
alignment, access and administrative simplification in a post-ACA coverage
environment at minimal cost to the Commonwealth. These proposals include:

Considering the use of Modified Adjusted Gross Income (MAGI)
instead of gross income to determine eligibility for adults with disabilities,
consistent with the methodology used for non-disabled adults. This may
protect individuals with disabilities from having more stringent MassHealth
income eligibility standards than non-disabled individuals. ($5.9 M cost; $3 M
revenue);

Continuing to provide health insurance coverage at full state
cost to Aliens with Special Status (AWSS) who are ineligible for participation
in the state Exchange; this is a small number individuals, as most AWSS are
newly eligible for federal assistance through the Exchange ($5.9 M cost; $0
revenue);

Extending MassHealth coverage to the end of the month for members
transitioning to Health Connector coverage, which begins on the first of the
month, in order to prevent gaps in coverage ($7 M cost; $3.9 M revenue);

Maintaining current waiver programs to cover individuals with
breast or cervical cancer up to 250 percent FPL and individuals with HIV up to
200 percent FPL (no budget impact in FY 2014); and

Health Insurance Exchange/Integrated Eligibility System (HIX-IES)

The Health Connector has
received a $45 M Early Innovator Exchange Grant in conjunction with EOHHS and
the University of Massachusetts Medical School to help support the inter-agency
Health Insurance Exchange/Integrated Eligibility System (HIX/IES) project.

HIX/IES will build be an integrated, real-time eligibility
determination system for the Health Connector and MassHealth health insurance
programs to ensure that people can readily find their way to the coverage
options for which they qualify. Existing state eligibility systems will be
significantly enhanced – and linked up with federal databases – to ensure a
quick and seamless path to coverage. These improvements will ultimately be
extended to determine eligibility for certain other state human services
programs.

The project will also enable the Health Connector to enhance
its already leading-edge shopping website to incorporate new decision support
tools, improved functionality for brokers and other new features for the benefit
of consumers. The objective is a best-in-class Health Connector shopping
experience that sets a new standard for consumer ease of use and satisfaction. HIX/IES
is also tied to a collaborative where participating New England states can
share lessons learned from developing the information technology backbone for
their respective Exchanges, as well as participate in the development of
cost-effective and reusable technology components.

MassHealth Program Investments and Savings Initiatives

The MassHealth program currently provides health insurance
for approximately 1.38 million members that qualify for the program based on
income or categorical eligibility (i.e., long-term unemployment, seniors, children,
pregnant, and disabled adults). This figure does not include the new MassHealth
Expansion populations; with the Expansion population and projected growth in
the base population, total MassHealth enrollment will be approximately 1.6
million. Many of these new MassHealth enrollees are not new to subsidized
coverage but are currently enrolled in Commonwealth Care or MSP.

Overall, MassHealth’s FY 2014 funding level of $12.3 B (excluding
DSTI) represents a 13.1 percent increase over FY 2013. Most of this increase,
however, is driven by the ACA Expansion populations and coverage preservation
under ACA (4.2 percent of increase), operational and hospital investments and
dental benefit restoration (0.8 percent of increase), enrollment increases for
current eligible members of 40,000 member months (2.6 percent of increase) and FY
2013 cash management strategies (2.9 percent of increase). When the annual growth
rate is adjusted for these unavoidable costs, the resulting growth rate is 2.5 percent,
which is lower than the state’s health care cost growth benchmark. In addition,
there will be 105,000 members leaving the Health Connector and moving into
MassHealth which will result in decreased spending at the Health Connector of
$257 M gross/$128.5 M net over the 6-month period in FY 2014.

The Commonwealth has made
significant investments in MassHealth in recent years and will continue to do
so in FY 2014 in order to promote program innovation and lay the ground work
for larger savings.

Increases

Program Integrity: $1.5 M cost; $750 K revenue

MassHealth received $1 M in FY 2013 to enhance its auditing
and program integrity capabilities through several initiatives, including
enhanced asset verification and the implementation of a predictive modeling
application. For FY 2014, MassHealth will receive an additional $1.5 M to staff
the Predictive Modeling unit and to run the application. MassHealth is on
track to become one of the first Medicaid programs in the country to leverage
predictive modeling to help avoid provider fraud and abuse.

Operations Investments: $2 M cost; $1 M revenue

MassHealth Operations will require additional Benefit
Eligibility and Review Social Workers (BERS) to manage the increased enrollment
as a result of the ACA in January 2014 and to build upon the improvements in
customer service and document processing times achieved thus far in FY 2013.
MassHealth received $1 M in FY 2013 and will receive an additional $2 M in FY
2014. In addition to enrolling new members, the additional staff will be
essential to improve the customer service experience for all members and enhance
program integrity efforts.

Hospital Rate Adjustments: $81.4 M costs; $40.7 M revenue

Hospitals continue to be integral partners in reforming the
health care system, and that role will only be enhanced as ACA implementation
continues. Accordingly, the Commonwealth is making significant investments in
hospital rates generally, as well as investments in specific pediatric and
chronic disease hospitals. These investments will enable hospitals to move
toward providing a higher quality of care through more significant use of
alternative payment methodologies (APMs).

These investments are offset by 50 percent FFP. Combined
with the reduction in the HSN shortfall, new Commonwealth investments in
hospitals will total at least $117 M in FY 2014. A portion of the investment
will be supported through a $20 M ($10 M net) transfer from the HPC’s
Healthcare Payment Reform Trust Fund, the purpose of which is to foster
innovation in health care payment and service delivery.

Hospital Investments and program savings in FY 2014 versus FY 2013

FY 2013

FY 2014

Change since FY 2013

Base Hospital Rates & APM Participation

$0

$51.4 M

$51.4 M

Children's Hospital

$1.2 M

$11.8 M

$10.6 M

Tufts Medical Center

$800 K

$3 M

$2.2 M

Franciscan Hospital for Children

$0

$3.3 M

$3.3 M

Infrastructure Capacity Building grants

$14.5 M

$26 M

$11.5 M

Critical Access Hospitals

$1.9 M

$4.3 M

$2.4 M

Health Safety Net Surcharge Reduction

$0

$36 - $58 M

$36 - $58 M

Total

$18.4 M

$136 - $158 M

$117 - $139 M

Hospital Investments and
program savings in FY 2014 versus FY 2013

Base Hospital Rates: Through a combination of base rate increases
and increases tied to participation in alternative payment methodologies
(APMs), MassHealth hospital payments will grow by as much as 5 percent. Chapter
224 authorizes MassHealth to implement rate increases to hospitals that
demonstrate significant transition to the use of APMs. MassHealth has the
authority to determine what constitutes significant use of APMs.

Health Safety Net: The reduction in the HSN shortfall constitutes
a major step towards improving the fiscal outlook for Massachusetts hospitals.

Adult Dental Coverage

Restoring full adult coverage in MassHealth and providing
comparable dental coverage for adults with incomes up to 133 percent FPL who
are enrolled in the Health Connector with the State Wrap. The total cost for 6
months is $72 M and the revenue to support the costs is collected from federal
support from premium costs for State Wrap and other resources such as enhanced
FFP from the ACA.

Primary Care Payment Reform

In accordance with Chapter 224, the
Commonwealth will make a $10 M investment in enhanced care coordination for
Primary Care Payment Reform (PCPR), MassHealth’s innovative accountable care
model. The goal of PCPR is to promote delivery system transformation by
improving accountability for health care quality, cost, and access, and providing
incentives for enhanced care coordination and behavioral health integration
through patient-centered medical homes.

MassHealth will implement an
innovative payment system that combines a Comprehensive Primary Care Payment
(CPCP) with a shared savings/risk arrangement and quality incentives. The
CPCP is a per-member-per-month risk-adjusted payment for a defined set of
primary care services and medical home activities, with the potential to
include certain outpatient behavioral health services. This system will improve
care for individuals by encouraging primary care providers to deliver effective
care, independent of the rigid structure that fee-for-service billing requires.
Innovations in primary care delivery include improving access through phone and
email services, expanding the care team to include community health workers and
using group or family visits or other delivery mechanisms.

Shared savings is an incentive
structure in which providers share in savings if MassHealth’s actual costs fall
below the expected costs over a specified time period. MassHealth anticipates
supporting participants through timely data and technical assistance to foster
care coordination and cost management. The quality incentive payment is an
annual performance incentive payment for improving primary care service
delivery.

PCPR will span across the Primary Care Clinician (PCC) Plan
and Managed Care Organizations (MCOs). MassHealth plans to launch a
procurement for PCCs to participate in the program, and MCOs will participate
in a similar payment structure with PCCs who are in their provider networks. MassHealth
expects to have 25 percent of PCC Plan members and MCOs participating by July
2013, with participation rates increasing to 50 percent by July 2014 and 80
percent by July 2015.

To support high quality
service delivery, operational efficiencies and process improvements, MassHealth
will be able to achieve additional efficiencies in FY 2014 by leveraging the
investments in program integrity described above. The new Integrated Eligibility
System and a range of innovative business process improvements will strengthen
MassHealth’s approach to member program integrity. Using a predictive modeling
application, MassHealth will utilize advanced software to analyze claims and
identify potential cases of fraud, waste and abuse before claim payments are
made to providers, establishing the Commonwealth as a trailblazer in the use of
this new technology.

Cash Management: $316 M savings

Every year, MassHealth implements a variety of cash management
strategies, including adjustments to the timing of payments, and will continue
to do so in FY 2014.

Additional Program Initiatives

Duals

With a proposed start date of July 1, 2013, the state Duals
Demonstration to integrate Medicare and Medicaid for dual eligible individuals
is designed to provide seamless person-centered care. It will improve quality
and health outcomes for 111,000 individuals aged 21-64 years with full
MassHealth and Medicare benefits. This delivery model will hold Integrated Care
Organizations (ICOs) accountable for a member’s total care, eliminating
conflicts and competing incentives between Medicare and Medicaid and reducing
administrative overlap to create efficiencies for members, providers, contractors, Medicare and Medicaid.
ICOs will also be required to use alternative payment methodologies to drive
greater focus on cost, quality and access.

Dual eligible individuals under
age 65 have among the most complex care needs of any MassHealth or Medicare
members, yet the current delivery system for this population strains, unevenly
and inefficiently, to meet those needs. The Demonstration will provide
comprehensive services that address enrollees’ full range of needs, beyond
currently covered standard Medicare and Medicaid benefits. It will ensure that
the services are effective by delivering them in a setting of integrated care
management and coordination based on a patient-centered medical home (PCMH)
model. The Demonstration will employ a payment structure that realigns the
conflicting incentives between Medicare and Medicaid.

In August 2012, Centers for Medicare & Medicaid Services
(CMS) gave MassHealth the approval to implement the Demonstration
through December 2016. Six regional
health plans have been identified to begin a
review phase that precedes contracting with CMS and
EOHHS. MassHealth projects cost savings of 1 percent during the
first year of implementation, with savings percentages rising incrementally to
4 percent by 2016.

Patient-Centered Medical Homes

The Patient-Centered Medical Home (PCMH) model supports
fundamental changes in primary care service delivery and payment reforms. The
PCMH Initiative is intended to address a series of challenges to health care
delivery, including fragmented care, increases in health care costs due to
prevalence of chronic disease and a growing shortage of primary care providers.
The PCMH model is designed to promote coordinated, patient-centered care
delivered by teams of primary care providers, including physicians. EOHHS has
set an ambitious goal for all primary care practices in Massachusetts to become
PCMHs by the year 2015. Providers that currently participate in the PCMH model
will be encouraged to transition to the more comprehensive PCPR Initiative
described above.

Money Follows the Person

Money Follows the Person (MFP) is a federal demonstration
initiative that will support the transition of individuals from long term care
facilities to the community. Massachusetts was awarded a federal MFP grant in
2011 at a 5-year funding level of $110 M. Through the use of lower-cost home
and community-based services, individuals who are currently in high-cost
facilities will be able to move to the community and achieve a level of
independence. The shift to lower-cost services will also provide savings to the
Commonwealth through reductions in the use of institutional care. MassHealth
is partnering closely with the Department of Developmental Services, Elder
Affairs and the Massachusetts Rehabilitation Commission in the design and
implementation of this important initiative.

The Delivery System
Transformation Initiatives (DSTI) program offers incentive payments to safety
net hospitals throughout the Commonwealth in order to fundamentally change the
delivery of care. The ultimate goal is transitioning away from fee-for-service
payments toward alternative payment methodologies that reward high-quality,
efficient and integrated care systems.

The DSTI program traditionally provides two payments per
fiscal year to hospitals, but due to the timing of program requirements, only
half of the FY 2014 obligation will be paid in this fiscal year. The first FY
2014 payment totals $105 M, funded with $94 M from the General Fund and $11 M
through an Inter-Governmental Transfer (IGT) by Cambridge Health Alliance. The
federal match for this payment is $52 M. The second DSTI payment will also
total $105 M, with a $52 M federal match, and will be moved from FY 2014 to FY
2015. This change does not alter the timing of the payment, only the fiscal
year in which it occurs.

Group Insurance Commission Program Initiatives

The Group Insurance Commission (GIC) provides high value
health insurance and other benefits to Commonwealth and certain public
authorities’ employees and retirees as well as their survivors and dependents.
The GIC also provides health-only benefits to participating municipalities'
employees and retirees and their survivors and dependents.

In FY 2013, the Group Insurance Commission (GIC) is focused
on providing high quality health insurance coverage to its members while
containing costs for the Commonwealth. The GIC embarked on a major
procurement of its health plans, utilizing innovative strategies to maintain
coverage and quality of care while containing costs. To pursue this in a
creative and thoughtful manner, the GIC devotes significant internal resources
to successfully incentivize health plans to reduce costs over the long term.
This includes implementing the principles of payment reform and incorporating
changes resulting from national health care reform.

Holding the Line on Premium Increases

The GIC continues to work
closely with its health plans to minimize rate increases. The Commission
held rate increases in FY 2013 to 1.4 percent and initiated a procurement that
is estimated to save the Commonwealth $1.29 B through FY 2018. The GIC will
accomplish this by reducing the average annual growth in spending from 6
percent to 2 percent in FY 2014, saving over $65 M and holding growth at or
below 2 percent thereafter.

Municipal Health Care

Through Municipal Health Care reform the GIC has opened its
doors to the cities and towns of the Commonwealth to participate in the Commission’s
health insurance program. Member communities have been provided a stable and
predictable cost through payments to the GIC and have benefited from the GIC’s
large size and formidable negotiating power.

Since the Administration proposed municipal health reform in
January 2011, more than 200 municipalities and regional school districts came
to agreements with employees, achieving premium savings totaling more than $175
M. Sixteen cities, towns, and school districts joined the 27 cities, towns, and
school districts already in GIC; seven used the new reform’s expedited
decision-making process and 9 joined as a result of negotiations inspired by
the reform process). The GIC now has more than 45,000 municipal subscribers,
triggering the addition of a second municipal representative and an additional
labor representative to the Commission.

Wellness

Promoting wellness is a further opportunity for the
Commonwealth to manage health care spending by encouraging healthy choices
among its employees and retirees. In the FY 2012 budget, the GIC was
tasked with developing a wellness program for its members. The GIC proposed
to fund its Wellness Initiative from its operating budget in FY 2014 and
A&F supported this proposal by creating a new GIC line item funded at $1.5
M.

Commonwealth Health Insurance Connector Authority Program Initiatives

The Health Connector was
recently one of the first six state exchange programs in the nation to be
certified conditionally as a state-based health insurance exchange on the path
to operating in compliance with the Affordable Care Act. The Health Connector
will kick off its annual Seal of Approval process in early 2013 for coverage
that will be available to individuals and small businesses starting January 1,
2014. This year’s Seal of Approval is a major milestone for the Health
Connector, as it will enhance its products and services to comply with the ACA
and better serve small employers and individuals. Enhancements to the
Health Connector shopping experience will include:

Real-time, integrated eligibility determinations that will
dramatically improve the processing time for applications seeking subsidized
health insurance coverage through MassHealth or the Health Connector;

An updated health insurance product portfolio, including newly
offering dental products alongside market-leading health insurance coverage
options and a new option for employers to allow their individual employees to
choose their own health insurer or a specific plan that they feel is right for
them;

An improved website with updated decision-support tools to
educate and assist individuals, small businesses and brokers in choosing the
best health insurance option for themselves, their employees or their clients;

New health insurance carriers to choose from, including insurance
cooperatives and national plans established under the ACA;

Enhanced call center and on-line customer assistance tools like
web chat, email messaging centers and both in-person and live chat to assist
individuals, businesses, brokers and navigators throughout the eligibility
determination process, shopping, paying bills, managing accounts, or just
seeking general information about health care reform;

New subsidies to help those between 300 percent and 400 percent
FPL purchase health insurance along with newly available state and federal
subsidies to help those below 300 percent FPL purchase commercial coverage
through the Health Connector; and

An expanded wellness rebate program offering small employers with
25 or fewer employees the opportunity to earn a 15 percent rebate on the
employer’s contribution to their employees’ health insurance coverage for
successfully participating in the Health Connector’s Wellness track program
(enrollment begins February 2013).

Governor’s Priorities in the Program Budget

For more information on the Governor’s priority of
accessible, affordable health care in program format, please visit www.mass.gov/budget/governor,
the online version of the FY 2014 Governor’s Budget. Click on the
Administration Priorities tab in the FY 2014 Program Budget Recommendations
Quick Link. The tab will open to show a list of the four Governor’s priorities
and the core set of programs that are critical in supporting the goals of each
priority.

Additional investments included in this memo can be viewed
by visiting the website and selecting the Health Coverage Related Services
program.